Wednesday, December 2, 2015

New FINRA Rule on Termination Disclosure Does not Change U-5 Reporting Periods

When brokers leave a firm, the firm notifies FINRA by filing a Form U5. Most U-5 filings are not controversial, but ones where a broker is fired can sometimes cause problems. In fact, we are constantly representing brokers in U5 disclosure issues, either negotiating the language before filing, or arbitrating with firms over what has already been filed.

The impact of a U5 filing when the broker has been fired can be significant, and far too many brokers find themselves unemployable because of the language of the disclosure on the form. We actively encourage brokers to get a securities employment attorney involved the moment that they learn of the termination, in an effort to minimize the language and help in the transition to a new firm.

Firms have 30 days to file a Form U-5. Because of the importance of the termination disclosure, BrokerCheck does not report the termination information for 15 days from filing, in order to give the broker the opportunity to submit a comment that is also disclosed on BrokerCheck.

In November, the SEC approved FINRA's request to reduce that 15 day "hold" to three days, and FINRA believes that this is a sufficient amount of time for the broker to receive the U-5, review it, consult with an attorney and file a comment. More about that later, but that is the rule change.

FINRA claims that the timing is important to investors. This is simply not true. Investors do not use BrokerCheck. Securities attorneys use BrokerCheck, but the simple reality is that under either version of the rule, the fact that the broker was terminated is on BrokerCheck almost immediately after the U5 is filed. The termination details are held for 15, or now, 3 days.

Incredibly, the New York Times, and some attorneys who represent customers, have published comments believing that FINRA changed the 30 day period. The New York Times states "[s]tarting on Dec. 12, brokerage firms will have to report the details of a broker's termination in three business days, down from 12." As above, this simply is not true, and unfortunately, the NYT's error is being multiplied by folks claiming to be securities attorneys who are re-posting the Time's article, without reading the actual rule change.

The reality for brokers with termination issues, is not to panic. The rule did not change, the firm still has 30 days to file, and you have time to negotiate.

If you are in danger of being terminated, contact a knowledgeable securities attorney to discuss the termination, the U-5 disclosures and how to minimize the impact.

The NYT Deal Book article is here. The rule change was in FINRA Regulatory Notice 15-49, and you can view Form U5 at FINRA's site.


New Rules on Reporting Brokers’ Dismissals to Begin Dec. 12 - The New York Times:

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